Contract by a Minor
With some exceptions, a contract made by a minor is voidable. The minor, in other words, may avoid the legal liability under a contract. Upon reaching the age of majority, a minor may affirm or ratify the contract and therefore make it contractually binding on him. Any expression of the minor’s intention to avoid the contract will accomplish avoidance.
A minor can only avoid a contract during his minority status and only for a reasonable time after he reaches the age of majority. After a reasonable period of time, the contract is deemed to be ratified and cannot be avoided.
When a minor avoids a contract, there are certain rules of law regarding the effect on any property received by the minor under the contract. If the minor still has what he received from the other party, he must return it to the other party upon seeking to avoid the contract. If he does not return the property in such a situation, he cannot avoid the contract. If the minor cannot return what he has received pursuant to the contract because it has been spent, damaged or destroyed, he still can avoid the contract. He can avoid the contract and is only required to return that part of the consideration he still has. Even if he has nothing left, or what he has is damaged property, he still can avoid the contract.
Helen, age 17, wanted to buy a motorcycle. She did not have the money to pay cash but persuaded the dealer to sell a cycle to her on credit. The dealer did so partly because Helen said that she was 22 and showed the dealer an identification card that falsely stated her age as 22. Helen drove the motorcycle away. A few days later, she damaged it and then returned it to the dealer and stated that she avoided the contract because she was a minor. The dealer said that she could not do so because (a) she had misrepresented her age and (b) the motorcycle was damaged. Can she avoid the contract? Yes. In a state that follows the common law rule, neither the damage to the property nor Helen’s misrepresentation of her age will prevent her from avoiding the contract. Some states would hold that because of the misrepresentation of age, Helen must pay for the damage that she has done, but she can avoid the contract. A few states would hold that Helen cannot avoid the contract because she misrepresented her age.
After a minor reaches the age of majority, he can ratify the contract. Once the contract has been ratified, the ex-minor cannot change his mind and avoid the contract. Ratification consists of any words or conduct of the minor which shows an intent to be bound by the contract. For example, Smith buys a car from Jones Ford Company for $10,000.00 when Smith is 17 years of age. Smith finances the car with Jones for 5 years making installment payments each month. Smith reaches his 18th birthday and continues to make payments for two months to Jones and then has a wreck. Smith decides that he is going to avoid the contract and get his $10,000.00 back. However, the fact that Smith reached the age of 18 and continued to make payments on the car and use the car would keep him from being able to avoid the contract. Smith’s conduct constituted a ratification of the contract. However, many Courts refuse to recognize payment as ratification unless further evidence is given of an intent to ratify a contract or an understanding by a minor that payment might constitute a ratification. In the situation with Smith and Jones, Jones would argue that Smith continued to use the car after he reached 18 as well as made payments on the car.
Parents of a minor are not liable regarding the contracts made by the minor merely because they are the parents of the minor. However, if a minor makes a contract and a parent or any other adult signs along with the minor as a co-signer, the parent or other adult can be held liable. For example, if Smith, who is a minor, buys a car from Jones Auto and Smith’s father co-signs the loan documents with Smith, Smith’s father can be held liable on the loan even if Smith seeks to avoid the contract.
A person who is mentally incompetent (non compos mentis) lacks the capacity to make a contract. The cause of the mental incompetency is immaterial. It can be the result of a mental illness, excessive use of drugs or alcohol, a stroke, etc. If the person does not have the mental capacity to understand that a contract is being made or the general nature of the contract, the person lacks contractual capacity. A person who is mentally incompetent may ordinarily avoid a contract in the same manner as a minor. If the person later becomes competent, he can ratify or avoid the contract at that time.